Some of Virgin's credit card customers have just been told that their interest
rates will rise by 50pc.

Credit cards will become the next flashpoint between banks and their customers after Virgin raised its clients' interest rates by 50pc. More than 15,000 customers of Virgin Money were issued with a "take it or leave it" ultimatum from the Branson-owned bank that recently promised it would bring "fresh ideas and an injection of new competition" into banking and "provide value for customers".

The move follows recent rises in mortgage rates from leading banks and building societies, and experts believe this will be the next battleground for banks to squeeze profit out of their customers as Bank Rate remains low.

"Lenders are finding it more expensive to get deposits," warned Andrew Hagger of Moneynet.co.uk. "I would expect to see more of this happening."

Kevin Mountford of Moneysupermarket.com agreed. "Credit card companies are looking through their books and looking at how customers use their cards," he said.

Virgin's cards are run by MBNA, which also has its own credit card offering and several other affinity partners. A spokesman for Virgin said MBNA had used its own criteria to decide which customers would see an interest rate rise. He added that customers had the opportunity to reject the increase and leave.

Related Articles

However, it is likely that many of them will have nowhere to go. "Usually the ones who suffer are those who have less than perfect credit records," said Mr Mountford. He added that it was difficult to tell how many banks and building societies were raising rates for existing customers, since it only came to light if customers informed the press, but added that it was "common" and would continue.

Interest rates on credit cards are already at a high for new applicants, and have crept up in the past three years despite a rock-bottom Bank Rate of 0.5pc. Figures from Moneysupermarket.com show that the average interest rate for new customers was 15.7pc in March 2009, but had risen to a high of 17.3pc by the end of February this year.

Some of the increases for existing customers are known to be very steep. Those customers selected by Virgin Money to suffer an interest rate rise in a review of its database will see the rate they pay on purchases increase from 16.8pc to 24.9pc. The rate they pay on balance transfers has also gone up from 18.9pc to 27.9pc. However, new borrowers will still receive the "old", more generous terms.

The customers who have received these rate increases are likely to be those who are already struggling financially. Mr Mountford warned that companies decided to raise rates where they saw signs of financial stress in customers' transactional data.

"It's done on an assessment of their risk from previous transactions," added Mr Hagger. "A couple of missed payments or someone relying on cash withdrawals more than before can be enough to flag you as a risk." In other words, if you are already struggling financially, you are more likely to be hit with an interest rate increase.

Customers have been given 30 days' notice of Virgin's rise. If they do not want to pay the new interest rate they have the option to reject it, simply by phoning Virgin Money and saying that they are rejecting the rate. However, this will mean that they are unable to spend more on the card. They are able to keep the interest rate at the current level until they pay off the balance. Customers have 60 days to do reject the rate.

Mr Hagger said customers who were in a position to leave Virgin could find better deals elsewhere. For those with a squeaky-clean credit record, it is possible to get a 0pc balance transfer card, effectively paying nothing on the card for a set period – giving customers a chance to pay off their debt.

At present it is possible to get a balance transfer card from Barclaycard that offers 22 months at 0pc with a 2.9pc transfer fee. Halifax offers a 22-month deal at 0pc with a balance transfer fee of 3.5pc.

Alternatively, customers could apply for a card with 0pc on spending. Marks & Spencer, Halifax and Tesco Clubcard are all offering 0pc deals on purchases for 15 months.

However, Mr Mountford said it was unclear how many people actually got these 0pc deals. "I don't know, but I suspect it is a very low percentage," he said. "These deals are effectively free advertising because they keep companies at the top of the best-buy tables." Although credit card companies are legally required to give an advertised rate to half the people whom they accept for their credit cards, they do not have to publish the percentage of applicants who are accepted or the number of people who have the cards.

For many people, getting a new card is becoming increasingly difficult. The most recent figures for Vanquis Bank, which provides cards for those with impaired credit ratings, state that only 18pc of those who apply are offered a card, as a result of tightened investment criteria. Figures from a recent report by PricewaterhouseCoopers called "Precious Plastic" showed that the number of credit cards in circulation fell by around a million in 2011, taking us back to levels not seen for a decade. Simon Westcott, a partner at PwC, warned that mainstream lenders were continuing to "retrench", making it difficult for many people to access credit and forcing many to turn to payday loans.

Those who are affected by credit card rate increases should check their credit records to see whether they are likely to be eligible for another card with a better rate. Companies are increasingly using "personal pricing" when giving out loans or credit cards, meaning they reserve the best rates for those who are deemed a good credit risk. If there are mistakes on your credit file, this will hinder you getting a good deal.

You have a right to see your files – held with Experian, Equifax and Callcredit – for £2, and there are also free trials that allow you to check them for nothing (but remember to cancel). Once you have seen any problems, you can write to lenders that have made a mistake to get the file corrected. Also, make sure that you deal with issues such as not being on the electoral roll, which may hurt your creditworthiness. You can also sign up for Noddle, which will give you free access to your credit report in return for targeted adverts, at noddle.co.uk.